D.C.I.T., Cir-12, Kolkata, V. M/s. B O C India Ltd.,

ITA 1071/KOL/2008

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4951 (ITAT-KOLKATA)
• Duration Of Justice: 7 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-08-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 10-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALLONG YADEN JCITSRDR
• Keywords: Capital asset; Depreciation; Business expenditure; Principle of natural justice; Fair market value; Valuation report; Revenue expenditure; Capital expenditure
• Section: 143(3); 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1071 & 669 / KOL / 2008 ASSESSMENT YEAR :2003-04 DCIT, CIRCLE-12, 3, GOVT. PLACE (WEST), KOLKATA-700 001 BOC INDIA LTD. OXYGEN HOUSE, P-43, TARATALA ROAD, KOLKATA- 700 088 [ PAN NO.AAACB 2528 H ] V/S . V/S . M/S BOC INDIA LTD., OXYGEN HOUSE, P-43, TARATALA ROAD, KOLKATA-700 088 ACIT, CIRCLE-12, KOLKATA, 3 GOVERNMENT PLACE (WEST), KOLKATA-01 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI SALLONG YADEN, JCIT-SR-DR /BY RESPONDENT SHRI K.R. VASUDEVAN, AR SHRI BASANT GADHYAN, ADVOCATE SHRI HARDIK LAKHANI, ADVOCATE /DATE OF HEARING 11-03-2016 /DATE OF PRONOUNCEMENT 19-04-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THESE ARE CROSS APPEALS BY REVENUE AND ASSESSEE AR E ARISING OUT OF COMMON ORDER OF COMMISSIONER OF INCOME TAX (APPEALS )-XII, KOLKATA IN APPEAL NO.34/XII/ACIT-12/06-07 DATED 06.03.2008. AS SESSMENT WAS FRAMED BY ACIT, CIRCLE-12, KOLKATA U/S 143(3) OF THE INCOM E TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORD ER DATED 31.03.2006 FOR ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 2 ASSESSMENT YEAR 2003-04. THEREFORE WE HEARD BOTH TH E APPEALS TOGETHER AND DEEM IT APPROPRIATE TO DISPOSE THEM BY WAY OF THIS COMMON ORDER. FIRST WE TAKE UP REVENUES APPEAL IN ITA NO.1071/KO L/2008 AY 03-04. 2. REVENUE HAS RAISED GROUNDS, WHICH ARE REPRODUCED BELOW:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE ASSESSEE OF RS .22,69,471/- TOWARDS SECURITY DEPOSITS WHICH WERE WRITTEN OFF BY THE ASS ESSEE COMPANY AND CLAIMED AS DEDUCTION U/S. 28 OF THE I.T. ACT WHEN T HE ASSESSEE FAILED TO GIVE ANY REASONS/EVIDENCES IN SUPPORT OF ITS CLAIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS TO WHY THESE AMOUNTS HAVE BECOME IRRECOVERABLE. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF THE ASSES SEE OF RS.34,03,526/- AS CONTINGENCIES WRITTEN OFF U/S. 28 OF THE IT ACT WITHOUT APPRECIATING THE FACE THAT THE ASSESSEE PAID THE SALES TAX UNDER PRO TEST AND SINCE THE LIABILITY AS ON DATE DOES NOT STAND AS IT HAS NOT B EEN CRYSTALLIZED IN VIEW OF THE DECISION OF THE APPELLANT AUTHORITIES BY WAY OF REMAND ORDERS TO THE LOWER AUTHORITIES WHICH BECAME TIME-BARRED SUBS EQUENTLY. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE AMOUNT OF RS.1 7,98,092/- BEING EXCESS DEPRECIATION ON BUILDING WHEN THE CURRENT CO ST OF CONSTRUCTION SHOULD BE TAKEN AS THE SALES CONSIDERATION OF THE B UILDING FOR THE PURPOSE OF REDUCING IT FROM THE WDV. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE AMOUNT OF RS.9 ,38,852/- ON ACCOUNT OF EARLIER PERIOD ELECTRICITY EXPENSES WHEN THE ASS ESSMENT ITSELF FAILED TO COLLECT THE BILLS FROM THE ELECTRICITY OFFICE IN DUE TIME AFTER THE CLOSURE OF THE FACTORY. 5. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE AMOUNT OF RS.1 6,05,000/- BEING PAID TO LABOURERS WHEN THE ASSESSEE FAILED TO FURNISH TH E DETAILS OF DISPUTED LABOUR CASES BEFORE THE A.O. SHRI K.R. VASUDEVAN, SHRI BASANT GADHYAN AND SHRI H ARDIK LAKHANI, LD. AUTHORIZED REPRESENTATIVES ARE APPEARING ON BEHALF OF ASSESSEE AND SHRI SALLONG YADEN, LD. DEPARTMENTAL REPRESENTATIVES APP EARING ON BEHALF OF REVENUE. ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 3 3. THE ISSUE RAISED BY REVENUE IN GROUND NO. 1 IN T HIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A O FOR AN AMOUNT OF RS. 22,59,471/- ON ACCOUNT OF HOLDING THE SECURITY DEPO SIT WRITTEN OFF AS CAPITAL LOSS. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A LIMITED COMPANY REGISTERED UNDER COMPANIES ACT, 1956. THE A SSESSEE IS ENGAGED IN MANUFACTURING AND SELLING OF VARIOUS INDUSTRIAL AND MEDICAL GASES. THE ASSESSEE DURING THE YEAR HAS WRITTEN OFF SECURITY D EPOSITS FOR A SUM OF RS. 22,59,471/- IN THE PROFIT AND LOSS ACCOUNT UNDER SE CTION 28 OF THE ACT AS TRADING LOSS DUE TO NON-RECOVERY. THESE SECURITY DE POSITS WERE MADE BY THE ASSESSEE WITH THE ELECTRICITY BOARD, TELEPHONE DEPA RTMENT, HOSPITALS AND EMD (EARNEST MONEY DEPOSITS) FOR OBTAINING COMMERCIAL C ONTRACTS. HOWEVER THE AO TREATED THE SAME AS CAPITAL LOSS THEREFORE NOT ALLO WABLE DEDUCTION AS BUSINESS EXPENDITURE WHILE COMPUTING THE INCOME UNDER THE BU SINESS HEAD. THE AO ALSO OBSERVED DURING THE ASSESSMENT PROCEEDINGS THA T THE ASSESSEE FAILED TO FURNISH THE REASONS FOR TREATING THE AMOUNT OF SECU RITY DEPOSIT AS IRRECOVERABLE. ACCORDINGLY THE AO HAS DISALLOWED SE CURITY DEPOSITS AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHERE IT WAS SUBMITTED THAT SECURITY DEPOSITS WERE MADE ON R EVENUE ACCOUNT IN THE COURSE OF NORMAL BUSINESS ACTIVITIES. THESE WERE WR ITTEN OFF AS THEY BECAME IRRECOVERABLE. THE ASSESSEE ALSO RELIED IN THE DECI SION OF HONBLE APEX SUPREME COURT IN THE CASE OF BADRIDAS DAGA V. CIT 34 ITR 10 WHEREIN IT WAS HELD THAT LOSS OTHER THAN CAPITAL LOSS WHICH IS REA LLY INCIDENTAL TO THE BUSINESS IS ALLOWABLE UNDER SECTION 28 OF THE INCOME TAX ACT . THE ASSESSEE ALSO RELIED IN THE CASE OF SATLUJ COTTON MILLS LTD. VS. CIT 116 ITR 1 WHEREIN IT WAS HELD THAT THE LOSS ON ACCOUNT OF TRADING ASSETS WAS ALLO WABLE DEDUCTION AND THE LOSS ON ACCOUNT OF CAPITAL ASSET WAS NOT ALLOWABLE DEDUCTION. IN THE INSTANT CASE THE SECURITY DEPOSITS WERE CLASSIFIED AS CURRE NT ASSETS I.E. TRADING ASSETS ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 4 AS THESE WERE MADE IN THE NORMAL COURSE AND FOR THE EFFECTIVE RUNNING OF BUSINESS. ACCORDINGLY THE LEARNED CIT(A) DELETED TH E ADDITION MADE BY THE AO. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 6. THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AO WHEREAS LD. AR SUPPORTED THE ORDER OF THE LEARNED CIT(A). WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABL E ON RECORD. THE AR HAS FILED A PAPER BOOK WHICH IS RUNNING FROM PAGES 1 TO 76. FROM THE AFORESAID DISCUSSION WE FIND THAT THE ASSESSEE HAS WRITTEN OF F CERTAIN SECURITY DEPOSITS DURING THE YEAR WHICH WERE MADE WITH THE TELEPHONE DEPARTMENT, ELECTRICITY DEPARTMENT, HOSPITALS AND ALSO AS EMD ETC. THE REAS ON FOR WRITING OFF THESE SECURITY DEPOSITS WAS EXPLAINED AS THESE WERE IRREC OVERABLE. HOWEVER THE SAME WAS DISALLOWED BY THE AO ON THE GROUND THAT TH ERE IS NO PROVISION UNDER THE ACT TO CLAIM THE LOSS BY WAY OF WRITING OFF CAP ITAL ASSETS. HOWEVER, LD. CIT(A) TREATED THE AFORESAID LOSS ON ACCOUNT OF TRA DING ASSETS AND ALLOWED THE DEDUCTION WHILE COMPUTING THE INCOME UNDER THE BU SINESS HEAD. NOW THE QUESTION BEFORE US WHETHER THE ABOVE LOSS IS ALLOWA BLE AS DEDUCTION WHILE COMPUTING THE INCOME UNDER THE BUSINESS HEAD OR NOT . 6.1 FROM THE FACTS WE FIND THAT THE LOSS CLAIMED BY THE ASSESSEE BY WAY OF WRITING OFF THE SECURITY DEPOSITS WAS ON THE REVENU E ACCOUNTS. THESE SECURITY DEPOSITS WERE MADE BY THE ASSESSEE IN THE NORMAL CO URSE OF BUSINESS. BY MAKING THE SECURITY DEPOSIT NO FIXED ASSETS HAS COM E INTO EXISTENCE. THEREFORE SUCH SECURITY DEPOSIT WAS CLASSIFIED AS C URRENT ASSETS IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THE BUSINESS EXPENDITU RE WHICH IS NOT SPECIFICALLY PROVIDED IN SECTIONS 30 TO 36 OF THE A CT CAN BE ALLOWED UNDER SECTION 37 OF THE ACT. SUCH EXPENDITURES BEFORE QUA LIFYING FOR DEDUCTION, ARE REQUIRED TO BE LAID OUT OR EXPENDED WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF THE BUSINESS AND PROFESSION. BUT EXPENDITURES IN TH E NATURE OF CAPITAL EXPENDITURES OR PERSONAL EXPENSES OF THE ASSESSEE A RE NOT ADMISSIBLE UNDER ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 5 THE SAID SECTION. HOWEVER, WE FIND THAT ISSUE RAISE D BY THE REVENUE IS ALREADY COVERED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE I N ITA NO.1085/KOL/2007 AND 1692/KOL/2007 FOR THE ASSESSMENT YEAR 2002-03 WHERE THE TRIBUNAL C BENCH ON SIMILAR FACTS HAS HELD THAT:- 5. GROUND NO. 2 OF THE REVENUE PERTAINS TO EARNEST MONEY WRITTEN OFF AND GROUND NUMBER 3 PERTAINS TO DELETION OF ADDITIO N OF 1,24,655/- BEING ADVANCED TO AN EMPLOYEE TREATING THE SAME AS THAT T HIS EXPENSE 6. ON GOING THROUGH THE ORDER OF THE LD. CIT(A), WE FIND NO REASON TO INTERFERE ON THE SAME. ACCORDINGLY BOTH THE GROUNDS OF THE REVENUE ARE HEREBY REJECTED AND DISMISSED. IN ADDITION TO THE ABOVE WE ALSO FIND NUMEROUS JUDG MENTS OF VARIOUS COURTS WHERE SUCH LOSSES WERE ALLOWED AS DEDUCTION WHILE D ETERMINING THE PROFIT UNDER THE BUSINESS HEAD. SOME OF THEM ARE DETAILED AS UNDER FOR THE PURPOSE OF THE REFERENCE. IN THE CASE OF RAMCHANDAR SHIVNARAYAN VS. CIT (1978) 111 ITR 263 (SC) THE APEX COURT AFFIRMING THE ORDER OF THE HONBLE HIGH COURT OF MADRAS HAS HELD THAT IF THERE IS A DIRECT AND PROXIMATE NEXUS BETWE EN THE BUSINESS OPERATION AND THE LOSS OR IT IS INCIDENTAL TO IT, THEN THE LO SS IS DEDUCTIBLE, AS, WITHOUT THE BUSINESS OPERATION AND DOING ALL THAT IS INCIDENTAL TO IT, NO PROFIT CAN BE EARNED. IT IS IN THAT SENSE THAT FROM A COMMERCIAL STANDARD SUCH A LOSS IS CONSIDERED TO BE A TRADING ONE AND BECOMES DEDUCTIB LE FROM THE TOTAL INCOME. IT IS TO BE REMEMBERED THAT THE DIRECT AND PROXIMAT E CONNECTION AND NEXUS MUST BE BETWEEN THE BUSINESS OPERATION AND THE LOSS . FURTHER, THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. TEXTOOL CO. LTD. 135 ITR 200 (MAD) HAS HELD AS FOLLOWS:- WHERE THE ASSESSEE CLAIMS A BUSINESS LOSS, THE MAI N QUESTION TO BE CONSIDERED IS, WHETHER THE LOSS IS INCIDENTAL TO TH E BUSINESS. THE TRIBUNAL FOUND THAT THE ASSESSEE HAD TO IMPORT FROM ABROAD CERTAIN COMPONENT PARTS NECESSARY FOR ITS MANUFACTURING BUS INESS. THE ASSESSEE HAD TO BE ABIDE BY THE SCHEME OF IMPORT LI CENCES UNDER WHICH THE ASSESSEE HAD TO PAY PREMIUMS TO THE FEDERATION IN ADVANCE COVERING THE ENTIRE IMPORT ENTITLEMENT. OWING TO BU SINESS EXIGENCIES, ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 6 THE ASSESSEE COULD NOT FULLY UTILIZE THE IMPORT ENT ITLEMENT, RESULTING IN A FORFEITURE OF PART OF THE ADVANCE DEPOSIT WITH THE FEDERATION. THE TRIBUNAL THEREFORE FELT NO DIFFICULTY IN FINDING TH AT THE DEDUCTION CLAIMED BY THE ASSESSEE IN WRITING OFF THE AMOUNTS SO FORFE ITED WAS IN THE COURSE OF AND INCIDENTAL TO THE ASSESSEES BUSINESS. SIMILARLY, THE BOMBAY HIGH COURT IN CASE OF I.B.M. WORLD TRADE CORPORATION VS. CIT 186 ITR 412(BOM) HAS HELD AS FOLLOWS:- AS THE ACQUISITION OF PREMISES ON LEASE WOULD NOT ORDINARILY BE IN THE CAPITAL FIELD, THERE IS NO HESITATION IN HOLDING TH AT THE MONEYS ADVANCED BY THE ASSESSEE IN PURSUANCE OF THE AGREEMENTS TO T HE LANDLORD FOR THE PURPOSES OF AND IN CONNECTION WITH THE ACQUISITION OF THE PREMISES ON LEASE WERE FOR THE PURPOSE OF BUSINESS. NATURALLY, THEREFORE WHEN SUCH ADVANCES ARE LOST TO THE ASSESSEE THE LOSS WOULD BE A BUSINESS LOSS AND NOT A CAPITAL LOSS. THE REVENUE HAS ALSO RAISED THE ISSUE THAT THE ASSE SSEE FAILED TO JUSTIFY AS TO WHY THE SECURITY DEPOSITS HAVE BECOME IRRECOVERABLE . IN OUR VIEW, IT IS THE ASSESSEE WHO CONDUCTS HIS BUSINESS AFFAIRS IN THE M OST EFFECTIVE BENEFICIAL MANNER AND IN THE INTEREST OF THE ORGANIZATION. THE AO CANNOT STEP INTO THE SHOES OF THE ASSESSEE FOR DEFINING THE BEST POSSIBL E WAYS OF THE BUSINESS. ACCORDINGLY WE OPINED THAT THE ASSESSEE HAS WRITTEN OFF THE SECURITY DEPOSITS IN THE INTEREST OF THE BUSINESS ORGANIZATION. THERE FORE THE QUESTION OF RECOVERY OR IRRECOVERY DOES NOT ARISE UNDER THE PRESENT COND ITIONS AND SITUATIONS. THE AO IN THE PRESENT CASE HAS NOT DOUBTED THE GENUINEN ESS OF THE LOSS CLAIMED BY THE ASSESSEE BUT THE LOSS WAS MERELY DISALLOWED BY HOLDING THEM AS CAPITAL LOSS. AS THE LOSS WAS ARISING FROM THE WRIT ING OF THE TRADING ASSETS WHICH WAS CLASSIFIED AS CURRENT ASSETS IN THE BOOKS OF ACCOUNTS AND ALSO RELYING IN THE AFORESAID DECISIONS WE UPHOLD THE OR DER OF THE LD CIT(A). HENCE THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 7. SECOND ISSUE RAISED IN GROUND NO. 2 BY REVENUE I N THIS APPEAL IS THAT THE LD CIT(A) ERRED IN DELETING THE ADDITION MADE B Y AO FOR RS. 34,03,526/- ON ACCOUNT OF CONTINGENCIES REPRESENTING THE SALES TAX PAID UNDER PROTEST. ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 7 8. THE ASSESSEE HAS MADE VARIOUS PAYMENTS TO THE SA LES TAX DEPARTMENT UNDER PROTEST AT THE TIME OF FILING THE APPEAL TO HIGHER AUTHORITIES. THESE APPEALS WERE REMANDED TO THE LOWER AUTHORITIE S BY THE HIGHER AUTHORITIES BUT THERE WAS NO PROGRESS SO THESE APPE ALS BECAME TIME BARRED. THEREFORE THE ASSESSEE HAS WRITTEN OFF THE PAYMENTS MADE TO THE SALES TAX DEPARTMENT UNDER PROTEST. HOWEVER, THE AO OPINED TH AT WRITING OFF CONTINGENCIES FOR AN AMOUNT OF RS.34,03,526/- IS IN THE NATURE OF AN EXTRA ORDINARY ITEM THEREFORE THE SAME CANNOT BE ALLOWED AS TRADING LOSS INCURRED IN THE ORDINARY COURSE OF BUSINESS. 9. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD. CI T(A) WHERE THE ASSESSEE SUBMITTED THAT THE AMOUNT OF CONTINGENCIES WRITTEN OFF REPRESENT TRADE LOSS INCURRED IN THE ORDINARY COURSE OF BUSIN ESS AND AS SUCH IT IS AN ALLOWABLE DEDUCTION UNDER SECTION 28 OF THE ACT. AC CORDINGLY, LD CIT(A) DELETED THE ADDITION MADE BY THE AO. BEING AGGRIEVED BY THIS ORDER OF THE LD CIT(A) REVE NUE IS IN APPEAL BEFORE US. 10. BEFORE US LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AO AND HE LEFT THE ISSUE TO THE DISCRETION OF THE BENCH WHEREAS LD. AR SUPPORTED THE ORDER OF THE LD CIT(A). 10.1 WE HAVE HEARD THE CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE AFORESAID DISCUSSION WE FIND THAT THE ASSESSEE HAS WRITTEN OFF THE PAYMENTS MADE TO THE S ALES TAX DEPARTMENT UNDER PROTEST. THE AO TREATED THE SAME AS EXTRAORDI NARY ITEM AND DISALLOWED BY HOLDING THAT THIS DOES NOT REPRESENT THE TRADE L OSS ARISING IN THE ORDINARY COURSE OF THE BUSINESS. HOWEVER, IN OUR CONSIDERED VIEW, THE PAYMENT MADE BY THE ASSESSEE UNDER PROTEST TO THE SALES TAX DEPA RTMENT IS VERY MUCH IN CONNECTION WITH THE BUSINESS ALTHOUGH SUCH KIND OF LOSS DOES NOT ARISE IN THE ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 8 NORMAL COURSE. BUT AT THE SAME TIME WE CANNOT IGNOR E THE BUSINESS CONNECTION WITH THE AFORESAID LOSS. THE BUSINESS EX PENDITURE WHICH IS NOT SPECIFICALLY PROVIDED IN SECTIONS 30 TO 36 OF THE A CT CAN BE ALLOWED U/S 37 OF THE ACT. THE ONLY TEST IS THAT SUCH EXPENDITURES BE FORE QUALIFYING FOR DEDUCTION ARE REQUIRED TO BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND PROFESSION. THEREFORE WE DISAGR EE WITH THE VIEW TAKEN BY THE AO. RELYING IN THE CASE OF MYSORE SUGAR COMPANY LIMITED 46 ITR 649 (SC), THE HONBLE SUPREME COURT HELD AS UNDER:- TO FIND OUT WHETHER EXPENDITURE IS ON THE CAPITAL ACCOUNT OR ON REVENUE, ONE MUST CONSIDER THE EXPENDITURE IN RELAT ION TO THE BUSINESS. SINCE ALL PAYMENTS REDUCE CAPITAL IN THE ULTIMATE A NALYSIS ONE IS APT TO CONSIDER A LOSS AS AMOUNTING TO A LOSS OF CAPITAL. BUT THIS IS NOT TRUE OF ALL LOSSES, BECAUSE LOSSES IN THE RUNNING OF THE BU SINESS CANNOT BE SAID TO BE OF CAPITAL. THE QUESTIONS TO CONSIDER IN THIS CONNECTION ARE: FOR WHAT WAS THE MONEY LAID OUT? WAS IT TO ACQUIRE AN A SSET OF AN ENDURING NATURE FOR THE BENEFIT OF THE BUSINESS, OR WAS IT A N OUTGOING IN THE DOING OF THE BUSINESS? IF MONEY BE LOST IN THE FIRST CIRC UMSTANCE, IT IS A LOSS OF CAPITAL, BUT IF LOST IN THE SECOND CIRCUMSTANCE IT IS A REVENUE LOSS. IN THE FIRST, IT BEARS THE CHARACTER OF AN INVESTMENT, BUT IN THE SECOND, TO USE A COMMONLY UNDERSTOOD PHRASE, IT BEARS THE CHARACTER OF CURRENT EXPENSES. FURTHER RELIANCE CAN ALSO BE PLACED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GILLANDERS ARBUTHNOT & CO. LTD. 138 ITR 763 (CAL), WHEREIN THE HONBLE HIGH COURT HELD THE FOLLOWINGS: - EVEN IF THE AMOUNT CANNOT BE TREATED AS A BAD DEBT IN THE SENSE THAT IT WAS NOT AN ADVANCE IN THE COURSE OF MONEY-LENDING B USINESS, IT CAN CERTAINLY BE ALLOWED AS A TRADING LOSS INCURRED BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS. TAKING A CONSISTENT VIEW OF VARIOUS HON'BLE HIGH CO URTS, WE OPINED THAT THE AFORESAID LOSS HAS BUSINESS CONNECTION WITH THE ASS ESSEE AND IS CLAIMED ON REVENUE ACCOUNTS. THEREFORE WE UPHOLD THE ORDER OF LD. CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 9 11. THIRD ISSUE RAISED BY REVENUE IN GROUND NUMBER 3 IS THAT LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR AN AMOUNT OF RS. 17,98,092/- ON ACCOUNT OF EXCESS DEPRECIATION CLAIM ED BY THE ASSESSEE. 12. DURING THE YEAR UNDER CONSIDERATION ASSESSEE HA S SOLD ITS FACTORY LOCATED IN DELHI, COMPRISING OF LAND AND BUILDING. THE AO SOUGHT THE CLARIFICATION FROM THE ASSESSEE REGARDING THE BIFUR CATION OF SALE PROCEEDS BETWEEN THE LAND AND THE BUILDING. IN RESPONSE TO T HE NOTICE THE ASSESSEE SUBMITTED THAT THE HIGHER OF THE FOLLOWING AMOUNTS HAD BEEN CONSIDERED AS RECEIVED TOWARDS BUILDING. 1. THE MARKET VALUE OF THE BUILDING NEAR TO THE DAT E OF THE SALE WHICH IS RS. 51,09,800.00 AS PER THE VALUERS REPORT DATED 8 .12.2000. AND/ OR 2. THE BOOK VALUE OF THE BUILDING REFLECTING IN THE BOOKS OF ACCOUNTS WHICH IS RS. 52,85,030.00. HOWEVER, THE AO DISREGARDED THE WORKING OF THE ASSE SSEE WITH REGARD TO THE SALE CONSIDERATION OF THE BUILDING. THE AO HELD THA T THE SALE CONSIDERATION/FAIR MARKET VALUE OF THE BUILDING SHOULD BE THE CURRENT COST OF THE CONSTRUCTION WITHOUT GIVING THE EFFECT OF THE DEPRECIATION. ACCO RDINGLY THE AO HAS TAKEN THE CURRENT COST OF CONSTRUCTION OF THE BUILDING FROM T HE VALUATION REPORT FILED BY THE ASSESSEE FOR AN AMOUNT OF RS. 2,32,65,950/-. SO THE AO HAS REDUCED THE WDV OF THE BUILDING BY THE RS. 2,32,65,950.00 AND W ORKED OUT THE EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE FOR AN AMOUNT OF RS. 17,98,092.00. THE EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE WAS DIS ALLOWED BY THE AO AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 13. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD C IT(A) WHERE IT WAS SUBMITTED THAT THE BUILDING IN QUESTION WAS VERY OL D AND IT WAS CONSTRUCTED IN THE YEAR 1950. SUBSEQUENTLY THE ADDITIONS WERE MADE IN THE BUILDING BY THE ASSESSEE FROM TIME TO TIME UP TO THE YEAR 1977. THE RE WAS NO MAINTENANCE OF THE BUILDING AS IT WAS LYING IDLE. THEREFORE, THE S ALE CONSIDERATION ATTRIBUTABLE ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 10 TO THE BUILDING CANNOT BE TAKEN AS THE CURRENT COST OF CONSTRUCTION OF THE BUILDING. ACCORDINGLY THE LD. CIT(A) DELETED THE AD DITION MADE BY THE AO BY OBSERVING AS UNDER : HOWEVER, I AM INCLINED TO AGREE WITH THE APPELLANT THAT THE AO COULD NOT HAVE CONSIDERED THE CURRENT COST OF CONSTRUCTIO N TO BE THE SALE CONSIDERATION WITHOUT CONSIDERING THE IMPACT OF DEP RECIATION INTO ACCOUNT, THE BUILDING SOLD BEING OF VERY OLD CONSTR UCTION. THE AO SHOULD HAVE TAKEN THE VALUERS REPORT INTO CONSIDERATION. THE AO HAS NOT STATED IN THE ORDER WHY THE VALUERS REPORT IS NOT ACCEPTA BLE AND IT IS NOT THAT THE AO GOT THE BUILDINGS REVALUED BY DEPARTMENTAL V ALUER. IN THE CIRCUMSTANCES, AO IS DIRECTED TO DELETE THE ADDITIO N OF RS.17,98,092/-. BEING AGGRIEVED BY THIS ORDER OF THE LD. CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 14. BEFORE US LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AO WHEREAS LD. AR RELIED ON THE ORDER OF THE LEARNED CIT(A). WE HA VE HEARD THE CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAIL ABLE ON RECORD. FROM THE AFORESAID DISCUSSION WE FIND THAT THE ASSESSEE HAS TAKEN THE SALE CONSIDERATION OF THE BUILDING OF RS.52,85,030/- BEI NG BOOK VALUE OF THE BUILDING AS PER ACCOUNTING RECORDS FOR WORKING OUT THE SHORT-TERM CAPITAL GAIN. HOWEVER, THE AO REJECTED THE WORKING OF THE ASSESSE E AND TAKEN SALE CONSIDERATION THE VALUE OF THE CURRENT COST OF CONS TRUCTION OF THE BUILDING WHICH IS RS.2,32,65,950/-. THE AO ACCORDINGLY REDUCED THE WDV OF THE BUILDING BY THE AMOUNT OF CURRENT COST OF CONSTRUCTION I.E. RS. 2,32,65,950/-. AS A RESULT OF CHANGE IN THE WDV EXCESS DEPRECIATION CLAIMED BY TH E ASSESSEE WAS WORKED OUT BY THE AO FOR AN AMOUNT OF RS.17,98,092/- WHICH WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 15. NOW THE QUESTION BEFORE US WHAT SHOULD BE THE V ALUE OF THE CONSIDERATION OF THE BUILDING SOLD BY THE ASSESSEE. IN THE INSTANT CASE, WE FIND FROM THE SUBMISSION OF THE ASSESSEE THAT THE BUILDI NG WAS VERY OLD AND IT WAS CONSTRUCTED IN THE YEAR 1950. SUBSEQUENTLY THE ADDI TIONS WERE MADE IN THE BUILDING UP TO THE FINANCIAL YEAR 1977. BESIDES THE ABOVE, THERE WAS NO ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 11 MAINTENANCE OF THE BUILDING AS THE FACTORY WAS CLOS ED DOWN. WE ALSO FIND FROM THE VALUERS REPORT DATED 8 TH DECEMBER 2000 ISSUED BY M. CHAUDHRY AND ASSOCIATES THAT THE MARKET VALUE OF THE BUILDING NE AR TO THE DATE OF SALE WAS AT RS.51,09,800/-. IN THE INSTANT CASE, ASSESSEE HAS D ECLARED THE SALE CONSIDERATION HIGHER THAN THE MARKET VALUE WHICH IS RS.52,85,030/- BEING BOOK VALUE OF THE BUILDING AS PER ACCOUNTING RECORD S. WE FURTHER OBSERVED THAT THE AO HAS NOT DOUBTED THE MARKET VALUE OF THE ASSE SSEE BUILDING AS PER VALUERS REPORT. THE LEARNED DR HAS ALSO NOT BROUGH T ANYTHING ON RECORD CONTRARY TO THE FINDING OF THE LEARNED CIT(A). IN V IEW OF ABOVE AND CONSIDERING THE FACTS OF THE CASE, WE FIND THAT THE MARKET VALU E OF THE BUILDING AS DETERMINED BY THE VALUER IS THE CORRECT VALUE OF TH E SALE CONSIDERATION OF THE BUILDING. SINCE THE BUILDING IN QUESTION IS VERY OL D SO THERE IS NO REASON TO TAKE THE CURRENT COST OF CONSTRUCTION OF BUILDING AS SAL E CONSIDERATION FOR THE COMPUTATION OF LONG TERM CAPITAL GAIN. THE VALUE GI VEN IN THE VALUATION REPORT IS CORRECT VALUE OF THE BUILDING AS THE SAME HAS NO T BEEN CHALLENGED BY THE AO. ACCORDINGLY IN OUR CONSIDERED VIEW, WE HAVE NO HESITATION IN UPHOLDING THE ORDER OF LEARNED CIT(A). HENCE THIS GROUND OF A PPEAL OF THE REVENUE IS DISMISSED. 16. FOURTH ISSUE RAISED BY REVENUE GROUND NUMBER 4 IN THIS APPEAL IS THAT THE LD.CIT(A) ERRED IN DELETING THE ADDITION MADE B Y THE AO FOR RS. 9,38,852/- ON ACCOUNT OF ELECTRICITY EXPENSES PERTAINING TO TH E EARLIER YEARS. 17. THE ASSESSEE HAS MADE THE PAYMENT OF ARREARS OF ELECTRICITY DUES IN RESPECT OF THE PROPERTY LOCATED IN DELHI AND CLAIME D THE SAME AS DEDUCTION IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE ALSO CLA IMED THAT IT WAS NOT AWARE FOR THE OUTSTANDING ARREARS OF ELECTRICITY CH ARGES AS THE FACTORY WAS CLOSED DOWN. THE ASSESSEE CAME TO KNOW FOR THE SAME WHEN THE PROPERTY WAS SOLD THEREFORE THE ELECTRICITY EXPENSES WERE DE TERMINED AND CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION. HOWEVER THE AO DIS REGARDED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT AS PER THE TAX AUDIT RE PORT THE ASSESSEE WAS ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 12 FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. SO T HE EXPENSES PERTAINING TO EARLIER YEARS SHOULD HAVE BEEN ACCOUNTED FOR IN THE RESPECTIVE FINANCIAL YEARS ALSO. THE EXPENSES OF THE EARLIER YEARS CANNOT BE C LAIMED AS DEDUCTION IN THE YEAR UNDER CONSIDERATION. ACCORDINGLY THE AO DISALL OWED THE ELECTRICITY EXPENSES AND ADDED TO THE TOTAL INCOME OF THE ASSES SEE. 18. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. CIT(A) WHO HAS DELETED THE ADDITION MADE BY THE AO. BEING AGGRIEVED BY THIS ORDER OF THE LD. CIT(A) REV ENUE IS IN APPEAL BEFORE US. 19. BEFORE US LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AO AND ON THE OTHER HAND THE LD. AR RELIED ON THE ORDER OF THE LD CIT(A). WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIES A ND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE AFORESAID DISCUSSION WE FIND THAT THE FACTORY OF THE ASSESSEE WHICH WAS LOCATED IN DELHI WAS CLOSED DOWN IN NOVEMBER 1996. THE ASSESSEE AFTER THE CLOSURE OF THE FACTORY DID N OT BOOK ANY ELECTRICITY EXPENSE IN ITS BOOKS OF ACCOUNTS ON THE GROUND OF N ON-RECEIPT OF ELECTRICITY BILLS ALTHOUGH THE ASSESSEE WAS FOLLOWING MERCANTIL E SYSTEM OF ACCOUNTING. THE ASSESSEE CLAIMED ALL THE BILLS OF ELECTRICITY D UES IN THE YEAR UNDER CONSIDERATION AS DEDUCTION ON THE GROUND THAT THESE DUES CAME TO ITS NOTICE IN THIS YEAR ONLY AND SAME WERE SETTLED ACCORDINGLY. H OWEVER THE AO DISAGREED WITH THE VIEW OF THE ASSESSEE AND HELD THESE EXPENS ES AS PRIOR PERIOD EXPENSES SO HE DISALLOWED. BUT AT THE APPELLATE STA GE LD CIT(A) REVERSED THE ORDER OF THE AO. 20. FROM THE FACTS IN HAND WE FIND THAT ASSESSEE FA ILED TO CLAIM THE ELECTRICITY EXPENSES DUE TO NON-RECEIPT OF THE BILL S AS THE DELHI FACTORY WAS CLOSED IN NOVEMBER 1996. WE FIND FORCE IN THE ARGU MENT OF THE LD. AR THAT ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 13 THESE EXPENSES WERE MADE KNOWN TO THE ASSESSEE AND ACCORDINGLY SETTLED IN THE YEAR UNDER CONSIDERATION. THEREFORE IN OUR CONS IDERED VIEW THESE EXPENSES WERE EXCLUSIVELY INCURRED IN CONNECTION WI TH THE BUSINESS ONLY AND ELIGIBLE FOR DEDUCTION UNDER SECTION 37 OF THE ACT. IN HOLDING, SO WE RELIED IN THE CASE OF SAURASHTRA CEMENTS AND CHEMICALS INDUSTRIES 213 ITR 523 WHERE HONBLE GUJARAT HIGH COURT HELD THAT THE EXPE NSES PERTAINING TO THE TRANSACTIONS OF EARLIER YEARS DO NOT BECOME LIABILI TY PAYABLE IN EARLIER YEAR UNLESS IT CAN BE SAID THAT LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR ON THE BASIS OF MAINTAINING ACCOUNT OF MERCANTILE B ASIS. IN VIEW OF ABOVE, WE HAVE NO HESITATION IN UPHOLDING THE ORDER OF LEARNE D CIT(A). HENCE THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 21. FIFTH ISSUE RAISED BY REVENUE IN GROUND NO. 5 I N THIS APPEAL IS THAT LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO FOR RS.16.05 LACS ON ACCOUNT OF FAILURE ON THE PART OF THE ASSESSEE TO F URNISH DETAILS OF DISPUTED LABOUR CASES. THE ASSESSEE HAD PAID A SUM OF RS.16. 05 LACS TO ITS EX- WORKERS OF ITS DELHI FACTORY OUT OF COURT SETTLEMEN T WITH THE LABOURERS AND CLAIMED DEDUCTION UNDER SECTION 37 OF THE ACT. THE ASSESSEE FOR CLAIMING SUCH DEDUCTION HAS RELIED IN THE DECISION OF HONBL E SUPREME COURT IN THE CASE OF K. RAVINDRANATHAN NAIR VS. CIT 247 ITR 178 (SC) WHEREIN IT WAS HELD THAT THE EXPENDITURE INCURRED IN CONNECTION WITH TH E SETTLEMENT OF LABOUR DISPUTES WAS ALLOWED FOR DEDUCTION AS BUSINESS EXPE NDITURE. HOWEVER THE AO DISREGARDED THE CLAIM OF THE ASSESSEE BY HOLDING TH AT THE FACTS OF THE ABOVE CASE WERE DIFFERENT FROM THE INSTANT CASE. IN THE P RESENT CASE THE FACTORY WAS CLOSED DOWN ON ACCOUNT OF POLLUTION PROBLEMS AND NO T ON ACCOUNT OF LABOUR DISPUTES. THEREFORE THE EXPENSES INCURRED ON LABOUR DISPUTES OUT OF COURT SETTLEMENT CANNOT BE ALLOWED AS DEDUCTION BY TREATI NG THE SAME AS REVENUE EXPENDITURE. THE AO TREATED THE SAME EXPENDITURE AS CAPITAL IN NATURE. THE AO ALSO RECORDED THAT THE DETAILS OF THE LABOUR DIS PUTES WERE NOT FURNISHED AT THE TIME OF ASSESSMENT. ACCORDINGLY THE AO DISALLOW ED THE EXPENSES AND ADDED TO THE TOTAL INCOME OF ASSESSEE. ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 14 22. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LEAR NED CIT(A) WHO DELETED THE ADDITION MADE BY THE AO HOLDING THAT THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF K. RAVINDRANATHAN NAIR (SUPRA) IS ENTIRELY APPLICABLE TO THE CASE OF THE ASSESSEE. BEING AGGRIEVED BY THIS ORDER OF THE LD.CIT(A) REVE NUE IS IN APPEAL BEFORE US. 23. BEFORE US LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AO AND ON THE OTHER HAND THE LD. AR RELIED ON THE ORDER OF THE LE ARNED CIT(A). WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIES AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. FROM THE AFORESAID DISCUSSION WE FIND T HAT THE AO HAS DISALLOWED THE LABOUR EXPENSES BY TREATING IT AS CAPITAL IN NA TURE. HOWEVER WE FIND FROM THE FACTS OF THE CASE THAT THE LIABILITY TOWARDS TH E LABOUR EXPENSES WAS DETERMINED AND CRYSTALLIZED IN THE YEAR UNDER CONSI DERATION SO IT SHOULD BE ALLOWED AS DEDUCTION UNDER SECTION 37 OF THE ACT. W E ALSO FIND THAT THE LIABILITY TOWARDS THE LABOUR EXPENSES WAS ON THE REVENUE ACCO UNT SO HOLDING IT ON CAPITAL ACCOUNT IS NOT APPROPRIATE. MOREOVER, THE D ECISION OF THE HON'BLE SUPREME COURT K. RAVINDRANATHAN NAYER AS (SUPRA) IS ENTIRELY APPLICABLE TO THE FACTS OF THE ASSESSEE AS THE INSTANT CASE ALSO RELATES TO THE LABOUR DISPUTE. THE LEARNED DR ALSO FAILED TO BRING ANYTHING ON REC ORD TO CONTROVERT THE FINDING OF THE LD CIT(A). THEREFORE TAKING A CONSIS TENT VIEW IN THE JUDGMENT OF HON'BLE SUPREME COURT AND WE HAVE NO HESITATION IN UPHOLDING THE ORDER OF LD CIT(A). HENCE THIS GROUND OF APPEAL OF THE REVEN UE IS DISMISSED. 24. IN THE RESULT, REVENUES APPEAL IS DISMISSED. COMING TO ASSESSEES APPEAL IN ITA NO. 669/KOL/08 AY 03-04. 25. GROUNDS RAISED BY ASSESSEE ARE AS UNDER:- 1(A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(APPEALS)ERRED IN UPHOLDING THE ACTION OF THE AS SESSING OFFICER IN DISALLOWING RS.9,49,461/-, BEING AMOUNT WRITTEN OFF IN THE PROFIT & LOSS ACCOUNT DURING THE YEAR UNDER APPEAL ON ACCOUNT OF ADJUSTMENT OF PORT CHARGES AGAINST DEPOSITS LYING WITH CALCUTTA PORT T RUST. ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 15 1(B). THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(APPEALS) ERRED IN HOLDING THAT THE WRITE OFF O F RS.949,461/- IS CAPITAL IN NATURE. 2(A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE CIT(APPEALS)ERRED IN NOT ADJUDICATING ENTIRE ISSUES , AS RAISED BY THE APPELLANT, RELATING TO THE COMPUTATION OF LONG TERM CAPITAL GAIN ATTRIBUTABLE TO SALE OF DELHI PROPERTY. 2(B). THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT(APPEALS) ERRED IN NOT ADJUDICATING GROUND NOS. 3(G) AND 3 (H ) OF THE GROUNDS OF APPEAL TAKEN BY THE APPELLANT BEFORE THE CIT(APPEAL S) . 2(C). THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT(APPEALS) ERRED IN NOT ADJUDICATING AND THEREBY UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING DEDUCTION OF RS.1 1,88,098/- AND RS.3,45,777/- BEING EXPENSES INCURRED TOWARDS VACAT ING DELHI PROPERTY & OTHER EXPENSES RELATING TO SALE OF DELHI PROPERTY WHILE COMPUTING THE LONG TERM CAPITAL GAINS ARISING FROM THE SALE OF DE LHI PROPERTY. 2(D) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE CIT(APPEALS)ERRED IN NOT ADJUDICATING AND THEREBY U PHOLDING THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE VALUERS REPORT FOR CONSIDERING THE FAIR MARKET VALUE OF LAND AS ON 01/04/1981 AT D ELHI AND INSERTED ARBITRARILY TAKING THE FAIR MARKET VALUE OF LAND AT 2/3 RD OF THE VALUE DETERMINED BY THE VALUER WHILE COMPUTING THE LONG T ERM CAPITAL GAINS ARISING FROM THE SALE OF DELHI LAND. 2(E) THAT ON THE FACTS & CIRCUMSTANCES OF THE CASE, THE CIT(APPEALS) FAILED TO APPRECIATE THAT THE ASSESSING OFFICER HAS REJECTED THE VALUERS REPORT ARBITRARILY & THE VALUE ADOPTED BY THE ASSES SING OFFICER HAS NO BASIS WHATSOEVER. 2(F). THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE CIT(APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFI CER IN NOT REDUCING THE AMOUNT OF RS.47,50,000/- WHILE COMPUTING THE LO NG TERM CAPITAL GAINS ARISING FROM THE SALE OF DELHI PROPERTY. 26. THE FIRST ISSUE RAISED BY ASSESSEE IN GROUND NO . 1 IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY D ISALLOWING PORT CHARGES WRITTEN OFF FOR AN AMOUNT OF RS.9,49,461/- AGAINST DEPOSITS LYING WITH CALCUTTA PORT TRUST. ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 16 27. THE ASSESSEE HAD BEEN IMPORTING RAW MATERIALS, STORES AND SPARES PARTS THROUGH CALCUTTA PORT TRUST (CPT FOR SHORT). THE CPT DID NOT RAISE THE BILLS TO THE ASSESSEE FOR THE SERVICES RENDERED IN CONNECTION WITH THE ABOVE IMPORT. HOWEVER THE ASSESSEE DEPOSITED THE MONEY TI ME TO TIME WITH CPT IN CONNECTION WITH THE IMPORT OF GOODS WHICH WAS CLASS IFIED IN ITS BOOKS OF ACCOUNTS AS CURRENT ASSETS. THE AMOUNT PAYABLE TO C PT AS PORT CHARGES WAS DETERMINED AND KNOWN TO THE ASSESSEE IN THE YEAR UN DER CONSIDERATION. SO THE ASSESSEE ADJUSTED THE AMOUNT PAID EARLIER TO CP T WITH THE PORT CHARGES AND CLAIMED SUCH EXPENSES UNDER SECTION 37 OF THE A CT. HOWEVER THE AO DISREGARDED THE CLAIM OF THE ASSESSEE BY HOLDING TH AT THE GOODS WERE IMPORTED IN EARLIER YEARS WHICH HAVE ALREADY BEEN A CCOUNTED FOR. THEREFORE THE EXPENSES PERTAINING TO PORT CHARGES SHOULD HAVE BEEN RECORDED IN THE YEAR OF IMPORT AS THE ASSESSEE IS FOLLOWING MERCANT ILE SYSTEM OF ACCOUNTING. ACCORDINGLY THE AO DISALLOWED THE PORT CHARGES FOR AN AMOUNT OF RS.9,49,461/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 28. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD C IT(A) WHO HAS UPHELD THE ORDER OF THE AO BY OBSERVING AS UNDER:- 6. REGARDING SECOND GROUND OF RS.9,49,461 IT IS PL EADED THAT THE APPELLANT WAS REQUIRED TO KEEP A DEPOSIT WITH PORT AUTHORITIES TOWARDS PORT CHARGES LEVIABLE TOWARDS CLEARANCE OF THE REPO RTED MATERIALS. AS AND WHEN THE MATERIALS WERE ACQUIRED THE COMPANY RE CEIVED A STATEMENT FROM THE PORT TRUST AND ON RECEIPT OF SUC H STATEMENT, THE APPELLANT USED TO ADJUST TRADING CHARGES AGAINST TH E DEPOSIT AMOUNT. THE APPELLANT CLAIMED THE SAID SUM AS AN ALLOWABLE BUSINESS EXPENDITURE U/S.37(1). THE APPELLANT HAS ALSO SUBMI TTED THAT BEFORE THE ASSESSING OFFICER THAT THE DEPOSIT WAS LYING IN THE BOOKS UNDER THE HEAD OTHER CURRENT ASSETS IN THE BALANCE-SHEET WITH OUT ADJUSTMENT ON ACCOUNT OF ACTUAL PORT CHARGES PAYABLE. SINCE THE A PPELLANT HAS ITSELF ADMITTED THAT THE SAID DEPOSIT WAS ENTERED WITH THE BOOKS UNDER THE HEAD OTHER CURRENT ASSETS, IT GIVES CREDENCE TO THE AOS BELIEF THAT THE SAID AMOUNT WAS OF THE CAPITAL NATURE. AS SUCH THE WRITE UP OF SUCH ASSET CANNOT BE TERMED AS REVENUE EXPENSE. IN THE C IRCUMSTANCES, DISALLOWANCE OF RS.9,49,461 IS UPHELD. ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 17 BEING AGGRIEVED BY THIS ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 29. THE LEARNED AR BEFORE US SUBMITTED THAT THE EXP ENSES CLAIMED BY THE ASSESSEE IN CONNECTION WITH THE PORT CHARGES ARE VE RY MUCH IS RELATED TO THE BUSINESS OF THE ASSESSEE THEREFORE THE SAME SHOULD BE ALLOWED UNDER SECTION 37 OF THE ACT. THE STATEMENT OF THE EXPENSES WAS RE CEIVED DURING THE YEAR SO THEY WERE ASCERTAINED IN THIS YEAR ONLY AND ALL THE SE EXPENSES ARE REVENUE IN NATURE. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUP PORTED THE ORDER OF LOWER AUTHORITIES. 29.1 WE HAVE HEARD THE CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE AFORESAID DISCUSSION WE FIND THAT THE ASSESSEE HAS IMPORTED THE GOODS IN THE EARLIER YEAR S WHICH WERE BOOKED AS EXPENDITURE IN THE YEAR OF IMPORT BUT THE ASSESSEE DID NOT BOOK THE PORT EXPENSES INCURRED IN CONNECTION WITH THE IMPORT AS THE BILLS FOR PORT CHARGES WERE NOT PROVIDED BY CPT. HOWEVER THE ASSESSEE WAS DEPOSITING THE MONEY WITH THE CPT IN CONNECTION WITH THE IMPORT OF THE G OODS AND THE SAME WAS CLASSIFIED UNDER THE HEAD CURRENT ASSETS IN THE BOO KS OF ACCOUNTS. THESE BILLS WERE PROVIDED IN THE YEAR UNDER CONSIDERATION BY CP T AND THE ASSESSEE ACCOUNTED FOR THE SAME IN THE BOOKS OF ACCOUNTS IN THE YEAR UNDER CONSIDERATION ON THE GROUND THAT THESE EXPENSES WER E DETERMINED AND CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION. HOWEV ER, THE LOWER AUTHORITIES HAVE DISALLOWED BY THE TREATING THE SAME AS PRIOR P ERIOD EXPENSES AND HOLDING THAT THESE EXPENSES SHOULD HAVE BEEN CLAIME D AS DEDUCTION IN THE YEAR OF IMPORT OF THE GOODS. HOWEVER IN THE INSTANT CASE, THE FACTS REVEALED THAT THE ASSESSEE FAILED TO CLAIM THE EXPENSES DUE TO NON-AVAILABILITY OF THE BILLS FROM THE CPT BUT THE ASSESSEE KEPT PAYING THE MONEY TO THE CPT IN THE FORM OF DEPOSITS. THE BILLS WERE DETERMINED AND CRY STALLIZED IN THE YEAR UNDER CONSIDERATION SO IN OUR CONSIDERED VIEW THESE EXPEN SES ARE VERY MUCH IN CONNECTION WITH THE BUSINESS AND ENTITLED FOR DEDUC TION UNDER SECTION 37 OF ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 18 THE ACT. IN HOLDING SO WE ARE PUTTING OUR RELIANCE IN HON'BLE GUJARAT HON'BLE HIGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. VS. CIT 23 ITR 523 (GUJ), WHEREIN THE HON'BLE GUJARAT HIGH COURT AT PAGE 531 HAS OBSERVED SUCH ITEMS WITHOUT INVESTIGATION IN TO THE FACT S ABOUT THE CRYSTALLIZATION OF SUCH DUES COULD NOT BE DISALLOWE D MERELY ON THE GROUND THAT THEY RELATED TO TRANSACTIONS PERTAINING TO AN EARLI ER ACCOUNTING YEAR IN THIS CONTEXT IT IS ALSO SUBMITTED THAT MERELY BECAUSE AN EXPENSE RELATES TO AN EARLIER YEAR, IT DOES NOT BECOME THE LIABILITY PAYA BLE IN THAT PARTICULAR YEAR. ANY LIABILITY, THOUGH PERTAINING TO EARLIER YEAR, DEPEN DS UPON MAKING A DEMAND AND ITS ACCEPTANCE BY THE ASSESSEE. IF SUCH LIABILI TY HAS ACTUALLY BEEN CLAIMED DURING SUBSEQUENT YEAR, IT CANNOT BE DISALLOWED MER ELY ON THE GROUND THAT THE ACCOUNTS ARE MAINTAINED ON MERCANTILE BASIS AND IT RELATES TO TRANSACTIONS PERTAINING TO AN EARLIER YEAR. FURTHER RELIANCE IS ALSO PLACED ON THE DECISION OF ITAT DELHI BENCH IN THE CASE OF KUMAR AEROSOLES (P) LTD. VS. ACIT 55 TTJ 385 (DEL) WHEREIN EXPENSES RELATING TO ELECTRICITY, TELEX, TYPEWRITER RENT AND TELEPHONE THOUGH RELATING TO EARLIER YEARS, ARE ALL OWABLE IN THE YEAR IN WHICH THE DEMAND IS RAISED. AGAIN, IN THE CASE OF ITO V. INFRATEX ENG. CO. 38 TTJ 551 (DEL), THE ITAT DELHI HAS HELD THAT EVEN THOUGH THE ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNT ON MERCANTILE BASIS, TH E ASSESSEE COULD NOT CLAIM LIABILITY IN THE EARLIER YEAR WHEN THE SAME H AD NOT ACCRUED. IT IS NOW WELL SETTLED THAT EVEN UNDER MERCANTILE SYSTEM OF ACCOUN TING THE LIABILITY IS ALLOWABLE IN THE YEAR OF ACCRUAL EVEN IF IT RELATES TO AN EARLIER YEAR. FURTHER IN THE CASE OF UNITED BANK OF INDIA VS. DCIT (1999) 68 ITD 332 (CAL) IT HAS BEEN HELD THAT ANY LIABILITY WHICH MAY BE CONSIDERED TO HAVE BEEN ARISEN ONLY IN A SUBSEQUENT YEAR HAS TO BE ALLOWED AS DEDUCTION EVEN IF THE SAME MAY BE ATTRIBUTABLE TO THE BUSINESS CONDUCTED BY THE ASSES SEE IN AN EARLIER YEAR. IN VIEW OF THE ABOVE WE REVERSE THE ORDERS OF THE LOWE R AUTHORITIES AND GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 19 30. SECOND ISSUE RAISED BY THE ASSESSEE IN GROUND N UMBER 2 IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO ON ACCOUNT OF VARIOUS DISALLOWANCES . 31. DURING THE YEAR UNDER CONSIDERATION ASSESSEE HA D SOLD ITS FACTORY COMPRISING OF THE BUILDING AND LAND WHICH WAS LOCAT ED AT 66 NAJAFGARH ROAD, SHIVAJI MARG, KIRTI NAGAR, NEW DELHI ON DATED 25 TH JUNE 2002. AS A RESULT OF SALE THE ASSESSEE DECLARED LONG TERM CAPITAL GAIN F ROM THE SALE OF LAND FOR AN AMOUNT OF RS. 7,30,15,457.00. WHILE WORKING OUT THE CAPITAL GAIN THE ASSESSEE HAS CLAIMED THE FOLLOWING DEDUCTIONS : 1. PREPAYMENT DISCOUNT RS. 47,50,000.00 2. EXPENSES FOR VACATING PROPERTY RS. 11,88,098.00 3. OTHER CONNECTED EXPENSES RS. 3,45,777.00 4. VALUATION AS ON 1.4.1981 RS. 1,46,20,000.00 PREPAYMENT DISCOUNT THE FACTORY WAS SOLD TO M/S LOHIA DEVELOPERS PRIVAT E LIMITED (FOR SHORT LDPL) FOR AN AMOUNT OF RS.15.51 CRORES ON DATED 25 TH OF JUNE 2002. SUBSEQUENTLY ON DATED 20 TH DAY OF MARCH 2003 THE ASSESSEE HAS REDUCED THE SAL E PRICE BY AN AMOUNT OF RS. 47.50 LACS ON ACCOUNT OF PREPAYMEN T. HOWEVER THE AO DISREGARDED THE CLAIM OF THE ASSESSEE BY HOLDING TH AT THE REDUCTION IN THE SALE CONSIDERATION ON ACCOUNT OF PREPAYMENT OF THE AMOUN T BY M/S LDPL IS PURELY CASH DISCOUNT AND THE SAME CANNOT BE REDUCED FROM T HE SALE CONSIDERATION FOR THE PURPOSE OF COMPUTING THE CAPITAL GAIN UNDER SECTION 45 READ WITH SECTION 48 OF THE ACT. EXPENSES FOR VACATING PROPERTY THE ASSESSEE AT THE TIME OF ASSESSMENT SUBMITTED TH AT FOR GETTING THE PROPERTY VACATED CERTAIN EXPENSES WERE INCURRED. TH ESE EXPENSES RELATE TO THE PAYMENT MADE BY THE COMPANY TO CERTAIN PERSONS AS DETAILED BELOW : ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 20 1. LAXMAN SINGH RAWAT RS. 5.80 LACS PAID ON 21.01. 2002 2. SARDARILAL SHARMA RS. 5 LACS PAID ON 07. 02.2002 3. KAMAL SHARMA RS.3.25 LACS PAID ON 07.02.2002 HOWEVER, THE AO OBSERVED THAT THE DIFFERENCE IN THE EXPENSES CLAIMED IN THE RETURN OF INCOME BY THE ASSESSEE AND IN THE SUBMISS ION OF THE ASSESSEE. IN THE RETURN THE EXPENSES WERE CLAIMED FOR RS. 11,88, 098.00 BUT IN THE IN THE ASSESSMENT PROCEEDINGS THE EXPENSES WERE CLAIMED FO R RS. 14,05,000.00. THE AO ALSO OBSERVED THAT FACTORY WAS LYING IDLE. ACCOR DINGLY THE AO OPINED THAT THE EXPLANATION OF THE ASSESSEE REGARDING THE EXPEN SES INCURRED IN CONNECTION WITH THE GETTING THE PROPERTY VACATED IS NOT RELIABLE. THEREFORE THE PLEA OF THE ASSESSEE WAS DISREGARDED BY THE AO. OTHER CONNECTED EXPENSES AT THE TIME OF ASSESSMENT PROCEEDINGS THE ASSESSEE FAILED TO FURNISH THE DETAILS OF THE ABOVE SAID EXPENSES THEREFORE THESE EXPENSES WERE DISALLOWED BY THE AO. VALUATION AS ON 1.4.1981 THE ASSESSEE HAS TAKEN A VALUATION REPORT OF THE LA ND AS ON 1.4.1981 WHICH WAS VALUED AT RS.146.20 LACS. THE VALUER WHILE VALU ING THE PROPERTY HAS SOLELY RELIED ON A BOOK WITH THE TITLE GUIDE TO H OUSE TAX IN DELHI 200102 WRITTEN BY NABHI. SO THE AO OPINED THAT THE VALUER HAS NOT VALUED THE PROPERTY INDEPENDENTLY AND IN SCIENTIFIC MANNER. ACCORDINGLY THE AO REJECTED THE VALUATION OF THE PROPERTY AND HAS TAKEN TWO-THIRD O F THE AMOUNT OF RS.146.20 LACS AS THE FAIR MARKET VALUE AS ON 1.4.1981. 32. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. CIT(A) WHO HAS UPHELD THE ORDER OF AO BY TREATING THE REDUCTION IN SALE C ONSIDERATION ON ACCOUNT OF PREPAYMENT AMOUNT BY M/S LDPL AS CASH DISCOUNT. ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 21 BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 33. AT THE OUTSET, WE OBSERVED THAT THE LD CIT(A) H AS NOT ADJUDICATED THE CLAIM OF THE ASSESSEE REGARDING THE EXPENSES INCURR ED FOR GETTING THE PROPERTY VACATED FOR RS.11,88,098/-, OTHER EXPENSES FOR RS.3 ,45,777/- AND THE VALUATION OF THE PROPERTY AS STOOD ON 01.04.1981. I N THIS VIEW OF THE MATTER AND FOR NATURAL JUSTICE WE RESTORE BACK THE MATTER TO THE FILE OF LD. CIT(A) FOR FRESH ADJUDICATION AS PER LAW. NEEDLESS TO MENTION THAT ASSESSEE SHOULD CO- OPERATE AT THE APPELLANT STAGE. THIS GROUND OF ASSE SSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. FOR THE DISALLOWANCE OF RS.47.50 LACS THE LEARNED A R HAS SUBMITTED THAT IT IS WELL SETTLED LAW TO TAX THE REAL INCOME. IN THE INS TANT CASE THE ASSESSEE HAD GIVEN A CASH DISCOUNT AND THE SAME CANNOT BE TREATE D AS INCOME OF THE ASSESSEE. ON THE OTHER HAND THE LEARNED THE LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 34. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE AFORESAID DI SCUSSION WE FIND THAT THE AO AND LD. CIT(A) HAS TREATED THE CASH DISCOUNT GIV EN BY THE ASSESSEE AS THE INCOME OF THE ASSESSEE. HOWEVER WE FIND THAT THE DI SCOUNT WAS GIVEN BY THE ASSESSEE ON ACCOUNT OF PREPAYMENT MADE BY THE PARTY . IN OUR CONSIDERED VIEW THE DISCOUNT GIVEN BY THE ASSESSEE SHOULD BE R EDUCED FROM THE SALE CONSIDERATION TO WORK OUT THE ACTUAL INCOME OF THE ASSESSEE. IN THIS CONNECTION WE ARE HAVING RELIANCE IN THE CASE OF SHAKUNTALA KANTILAL [1991] 190 ITR 56 WHERE THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT THE EXPRESSION FULL VALUE OF CONSIDERATION CONTEMPLATES BOTH ADDITIONS TO, AS WELL AS DEDUCTIONS FROM, THE APPARENT VALUE. WHAT IT MEA NS IS THE REAL AND EFFECTIVE CONSIDERATION. FURTHER IN THE CASE OF DR. FAREED JAMSHID ITALIA (2011) 203 TAXMAN 241 WHERE IT HAS BEEN OBSERVED BY THE HO N'BLE MADRAS HIGH ITA NO.1071& 669/KOL/2008 A.Y. 20 03-04 DCIT CIR-12 KOL. V. M/S BOC INDIA LTD. PAGE 22 COURT THAT FULL VALUE OF CONSIDERATION AS DEFINED UNDER SECTION 48 OF THE ACT CANNOT BE SAID TO MEAN APPARENT CONSIDERATION AS E NVISAGES IN CHAPTER XX- C OF THE ACT. IN VIEW OF THE ABOVE WE HOLD THAT THE CASH DISCOUNT GIVEN BY THE ASSESSEE CANNOT BE TREATED AS INCOME. ACCORDINGLY T HE ADDITION MADE BY THE LOWER AUTHORITIES STANDS DELETED. HENCE THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 35. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSE. 36. IN COMBINED RESULT, APPEAL OF REVENUE IS DISMISSED AND THAT OF ASSESSEE IS ALLOWED PARTLY FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT 19/ 04/2016 SD/- SD/- (MAHAVIR SINGH) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 19 / 04 /201 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT, CIR-12, 3, GOVT. PLACE (WEST), KOL KATA-700 001 2. /RESPONDENT-M/S BOC INDIA LTD., OXYGEN HOUSE, P-43, TARATALA ROAD,KOL-88 3. ) *+ , , - / CONCERNED CIT KOLKATA 4. , , -- / CIT (A) KOLKATA 5. 012 33*+, , *+ , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ , , /TRUE COPY/ / , *+ ,